Global Market Quick Take: Europe – October 27 2023

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Equities: Ugly session yesterday with Nasdaq 100 futures declining 2% to a new low for the cycle that started in July. The combination of initially higher US 10-year yield and investors disappointed about Meta’s outlook weighed on US technology stocks. However, in our view a 12-month forward free cash flow yield of 5% on Meta combined with low double-digit revenue growth should still be attractive for a long-term investor. Better-than-expected earnings results from Amazon and Intel after the US market close have lifted US equity futures from yesterday’s close.

FX: Strong US GDP and a dovish ECB outcome could not propel the dollar materially higher, supporting the case that upside is starting to look limited. The greenback was on a back-foot in the Asian session, with AUDUSD climbing above 0.6340 from lows of 0.6270 yesterday and NZDUSD touching 0.5830 after pushing below the 0.58 handle yesterday to YTD lows. EURUSD moved back above 1.0560 despite economic concerns highlighted at the ECB meeting, as much of that was priced in. USDJPY slightly eased from its highs of 150.78 yesterday but still above 150 and intervention threat looms.

Commodities: Crude oil remains rangebound as the war premium continues to wobble in response to the news flow from the Middle East. Overnight prices rose after the US had struck two Iranian linked targets inside Syria. A weakening demand outlook has so far helped curb the geopolitical risk premium. US natural gas trades up 8% on the week amid smaller stockpile build and forecasts for much cooler weather next week increasing demand for heating. Gold stays supported near key resistance on haven demand amid continued stock and bond market volatility.

Fixed income: Treasuries rallied sharply across the yield curve, despite stronger-than-expected GDP growth and durable goods orders. This was partly helped by a quarterly core PCE slightly below the consensus estimate and after the $38 billion 7-year auction attracted decent demand, but tailed despite the rally. The 2-year yield trades 5.05% down from a 5.14% peak on Thursday, and the 10-year yield at 4.87% after once again finding buyers near the key 5% area.

Volatility: The volatility index (VIX) opened higher yesterday, at 21.71, and while the stock market declined during the day, the VIX also did (normally it moves in the opposite direction), ending at 20.68. VIX futures also declined overnight, what may be an indication that the markets will take a break from their steep decline of the last few days. S&P500 & Nasdaq futures show a similar image, with the S&P500 E-mini Futures at +0.63% and the Nasdaq 100 E-mini Futures at +0.89% during their overnight session. The VIX volatility index (VVIX) is still above 100 (101.97), indicating that there’s still a lot of uncertainty in the markets.

Technical analysis highlights: S&P 500 support at 4,100-4,050. Nasdaq 100 downtrend likely to drop below 14K, support at 13,590. DAX sliding lower, next support at 14,675 & 14,500. EURUSD resuming downtrend. USDJPY broken resistance at 150.16, next 152. Gold testing 1,985 resistance, still possible correction to 1,945-1,925. US 10-year T-yields resuming uptrend, resistance at 5%, support 4.80 possible correction to 4.70

Macro: US Q3 GDP print was hot, rising 4.9%, above the 4.5% forecast and accelerating from the 2.1% growth in Q2 with a large jump in consumer spending to 4.0% from 0.8% in Q2. The PCE data for Q3 was slightly softer than expected at 2.4% (exp. 2.5%) and down from the prior 3.7% QoQ. Strong growth confirmed US exceptionalism story again, but business and consumer headwinds are rising fast in Q4. Initial jobless claims continued to hover around the 200k mark, printing 210k, marginally above the expected 208k and rising from the prior 200k. The ECB opted to call a "pause" in its hike campaign by keeping all three of its key rates unchanged. The statement reported that interest rates are at levels that, if maintained for a sufficiently long duration, will bring inflation back to its target. That reinforced market expectations that the tightening cycle may now be finished.  Japan’s October Tokyo CPI came in above expectations, raising the odds of BOJ tweak further next week after USDJPY rose above 150.50 yesterday and intervention efforts possibly remained limited. Headline Tokyo CPI was out at 3.3% YoY from 2.8% prior and expected, while core core CPI was at 3.8% YoY with September’s also revised higher to 3.96% YoY.

In the news: Siemens Energy shares plunged nearly 40% on Thursday, after the group said it was in talks with the German government about state guarantees following big setbacks at its wind unit (Reuters), Beijing is expanding its probes to include bankers and financial institutions that facilitated developers’ risky behavior, people familiar with the matter say (WSJ), Amazon's cloud stabilizing, shoppers cautious heading into holiday season (Reuters), Intel beats expectations as margins rise, manufacturing momentum builds (Reuters), US strikes Iranian targets in Syria –Pentagon (Reuters)

Macro events (all times are GMT): US PCE (Sep) core exp 0.3% MoM & 3.4% YoY vs 0.1% & 3.5% prior (1230), US Personal Income (Sep) exp 0.4% vs 0.4% prior, Spending exp 0.5% vs 0.4% prior (1230), University of Michigan (Oct) exp 63 vs 63 prior.

Earnings events: Exxon Mobil reports Q3 earnings today (10:30 GMT) with analysts expecting revenue growth of -11.4% and EBITDA of $18.3bn down from $24.9bn a year ago a oil and natural prices in Q3 were lower than a year ago. Chevron is also reporting Q3 earnings today (bef-mkt) with analysts expecting revenue growth of -19.3%, and EBITDA of $13.8bn down from $16.4bn a year ago.